About the Lorenz Curve

What it is – How it works
By staff reporters


The Lorenz curve is a graphical representation of income inequality or wealth inequality developed by American economist Max Lorenz in 1905.


The graph plots percentiles of the population according to income or wealth on the horizontal axis. It plots cumulative income or wealth on the vertical axis, so that an x-value of 45 and a y-value of 14.2 would mean that the bottom 45% of the population controls 14.2% of the total income or wealth. http://www.HealthDictionarySeries.org




The concept is useful in describing inequality among the size of individuals in ecology and in studies of biodiversity, where the cumulative proportion of species is plotted against the cumulative proportion of individuals.

It is also useful in business modeling: e.g., in consumer finance, to measure the actual percentage y% of delinquencies attributable to the x% of people with worst risk scores.

MORE: https://www.investopedia.com/terms/l/lorenz-curve.asp


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